1. Operations Strategy

2. Some Boeing Suppliers (787)
Firm Country Component
Latecoere France Passenger doors
Labinel France Wiring
Dassault France Design and
PLM software
Messier-Bugatti France Electric brakes
Thales France Electrical power
conversion system
and integrated
standby flight display
Messier-Dowty France Landing gear structure
Diehl Germany Interior lighting

3. Some Boeing Suppliers (787)
Firm Country Component
Cobham UK Fuel pumps and valves
Rolls-Royce UK Engines
Smiths Aerospace UK Central computer
system
BAE SYSTEMS UK Electronics
Alenia Aeronautics Italy Upper center
fuselage &
horizontal stabilizer
Toray Industries Japan Carbon fiber for
wing and tail units

4. Some Boeing Suppliers (787)
Firm Country Component
Fuji Heavy Japan Center wing box
Industries
Kawasaki Heavy Japan Forward fuselage,
Industries fixed section of wing,
landing gear well
Teijin Seiki Japan Hydraulic actuators
Mitsubishi Heavy Japan Wing box
Chengdu Aircraft China Rudder
Group
Hafei Aviation China Parts

5. Some Boeing Suppliers (787)
Firm Country Component
Korean Aviation South Wingtips
Korea
Saab Sweden Cargo access doors

6. Reasons to Globalize Reasons to Globalize Tangible Reasons
Reduce costs (labor, taxes, tariffs, etc.)
Improve supply chain
Provide better goods and services
Understand markets
Learn to improve operations
Attract and retain global talent
Tangible Reasons
Intangible Reasons

7. Cultural and Ethical Issues
Cultures can be quite different
Attitudes can be quite different towards
Punctuality
Lunch breaks
Environment
Intellectual property
Thievery
Bribery
Child labor

8. You May Wish To Consider
National literacy rate
Rate of innovation
Rate of technology change
Number of skilled workers
Political stability
Product liability laws
Export restrictions
Variations in language
Work ethic
Tax rates
Inflation
Availability of raw materials
Interest rates
Population
Number of miles of highway
Phone system

9. Developing Missions and Strategies
Mission statements tell an organization where it is going
The Strategy tells the organization how to get there

10. Mission Mission - where are you going?
Organization’s purpose for being
Answers ‘What do we provide society?’
Provides boundaries and focus

11. FedEx is committed to our People-Service-Profit philosophy
FedEx is committed to our People-Service-Profit philosophy. We will produce outstanding financial returns by providing total reliable, competitively superior, global air-ground transportation of high priority goods and documents that require rapid, time-certain delivery. Equally important, positive control of each package will be maintained using real time electronic tracking and tracing systems. A complete record of each shipment and delivery will be presented with our request for payment. We will be helpful, courteous, and professional to each other and the public. We will strive to have a completely satisfied customer at the end of each transaction.

12. The mission of Merck is to provide society with superior products and services - innovations and solutions that improve the quality of life and satisfy customer needs - to provide employees with meaningful work and advancement opportunities and investors with a superior rate of return

13. Our Mission: To spread the spirit of Rock ‘n’ Roll by delivering an exceptional entertainment and dining experience. We are committed to being an important, contributing member of our community and offering the Hard Rock family a fun, healthy, and nurturing work environment while ensuring our long-term success.

14. Factors Affecting Mission
Philosophy and Values
Profitability and Growth
Environment
Customers
Public Image
Mission
Benefit to Society

15. Sample Company Mission Sample Operations Management Mission
Sample Missions
Sample Company Mission
To manufacture and service an innovative, growing, and profitable worldwide microwave communications business that exceeds our customers’ expectations.
Sample Operations Management Mission
To produce products consistent with the company’s mission as the worldwide low-cost manufacturer.
Figure 2.3

16. Sample OM Department Missions
Sample Missions
Sample OM Department Missions
Product design
To design and produce products and services with outstanding quality and inherent customer value.
Quality management
To attain the exceptional value that is consistent with our company mission and marketing objectives by close attention to design, procurement, production, and field service operations
Process design
To determine and design or produce the production process and equipment that will be compatible with low-cost product, high quality, and good quality of work life at economical cost.
Figure 2.3

17. Sample OM Department Missions
Sample Missions
Sample OM Department Missions
Location
To locate, design, and build efficient and economical facilities that will yield high value to the company, its employees, and the community.
Layout design
To achieve, through skill, imagination, and resourcefulness in layout and work methods, production effectiveness and efficiency while supporting a high quality of work life.
Human resources
To provide a good quality of work life, with well-designed, safe, rewarding jobs, stable employment, and equitable pay, in exchange for outstanding individual contribution from employees at all levels.
Figure 2.3

18. Sample OM Department Missions
Sample Missions
Sample OM Department Missions
Supply chain management
To collaborate with suppliers to develop innovative products from stable, effective, and efficient sources of supply.
Inventory
To achieve low investment in inventory consistent with high customer service levels and high facility utilization.
Scheduling
To achieve high levels of throughput and timely customer delivery through effective scheduling.
Maintenance
To achieve high utilization of facilities and equipment by effective preventive maintenance and prompt repair of facilities and equipment.
Figure 2.3

19. Organization’s Mission
Strategic Process
Organization’s Mission
Functional Area Missions
Marketing
Operations
Finance/ Accounting

20. Strategy Action plan to achieve mission
Functional areas have strategies
Strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses

21. Strategies for Competitive Advantage
Differentiation – better, or at least different
Cost leadership – cheaper
Response – rapid response

22. Competing on Differentiation
Uniqueness can go beyond both the physical characteristics and service attributes to encompass everything that impacts customer’s perception of value
Safeskin gloves – leading edge products
Walt Disney Magic Kingdom – experience differentiation
Hard Rock Cafe – dining experience

23. Competing on Cost
Provide the maximum value as perceived by customer. Does not imply low quality.
Southwest Airlines – secondary airports, no frills service, efficient utilization of equipment
Wal-Mart – small overheads, shrinkage, distribution costs
Franz Colruyt – no bags, low light, no music, doors on freezers

24. Competing on Response
Flexibility is matching market changes in design innovation and volumes
Institutionalization at Hewlett-Packard
Reliability is meeting schedules
German machine industry
Timeliness is quickness in design, production, and delivery
Johnson Electric, Bennigan’s, Motorola

25. OM’s Contribution to Strategy
Operations Specific Competitive
Decisions Examples Strategy Used Advantage
Product
Quality
Process
Location
Layout
Human resource
Supply chain
Inventory
Scheduling
Maintenance
FLEXIBILITY:
Sony’s constant innovation
of new products………………………………....Design
HP’s ability to lead
the printer market………………………………Volume
Southwest Airlines No-frills service……..…..LOW COST
DELIVERY:
Pizza Hut’s 5-minute guarantee
at lunchtime…………………..…..………………….Speed
Federal Express’s “absolutely,
positively on time”………………………..….Dependability
QUALITY:
Motorola’s HDTV converters….…… Conformance
Motorola’s pagers………………………..….Performance
Caterpillar’s after-sale service
on heavy equipment……………....AFTER-SALE SERVICE
Fidelity Security’s broad
line of mutual funds………….BROAD PRODUCT LINE
Response
(Faster)
Cost leadership
(Cheaper)
Differentiation
(Better)
Figure 2.4

26. 10 Strategic OM Decisions
Goods and service design
Quality
Process and capacity design
Location selection
Layout design
Human resources and job design
Supply chain management
Inventory
Scheduling
Maintenance

27. Goods and Services and the 10 OM Decisions
Operations Decisions
Goods
Services
Goods and service design
Product is usually tangible
Product is not tangible
Quality
Many objective standards
Many subjective standards
Process and capacity design
Customers not involved
Customer may be directly involved
Capacity must match demand
Table 2.1

28. Goods and Services and the 10 OM Decisions
Operations Decisions
Goods
Services
Location selection
Near raw materials and labor
Near customers
Layout design
Production efficiency
Enhances product and production
Human resources and job design
Technical skills, consistent labor standards, output based wages
Interact with customers, labor standards vary
Table 2.1

29. Goods and Services and the 10 OM Decisions
Operations Decisions
Goods
Services
Supply chain
Relationship critical to final product
Important, but may not be critical
Inventory
Raw materials, work-in-process, and finished goods may be held
Cannot be stored
Scheduling
Level schedules possible
Meet immediate customer demand
Table 2.1

30. Goods and Services and the 10 OM Decisions
Operations Decisions
Goods
Services
Maintenance
Often preventive and takes place at production site
Often “repair” and takes place at customer’s site
Table 2.1

31. Managing Global Service Operations
Requires a different perspective on:
Capacity planning
Location planning
Facilities design and layout
Scheduling

32. Process Design Process-focused High Mass Customization JOB SHOPS
Customization at high Volume
(Dell Computer’s PC, cafeteria)
Low Moderate High
Volume
High
Moderate
Low
Variety of Products
Process-focused
JOB SHOPS
(Print shop, emergency room, machine shop, fine-dining restaurant)
Repetitive (modular) focus
ASSEMBLY LINE
(Cars, appliances, TVs, fast-food restaurants)
Product focused
CONTINUOUS
(steel, beer, paper, bread, institutional kitchen)

33. Operations Strategies for Two Drug Companies
Brand Name Drugs, Inc.
Generic Drug Corp.
Competitive Advantage
Product Differentiation
Low Cost
Product Selection and Design
Heavy R&D investment; extensive labs; focus on development in a broad range of drug categories
Low R&D investment; focus on development of generic drugs
Quality
Major priority, exceed regulatory requirements
Meets regulatory requirements on a country by country basis
Table 2.2

34. Operations Strategies for Two Drug Companies
Brand Name Drugs, Inc.
Generic Drug Corp.
Competitive Advantage
Product Differentiation
Low Cost
Process
Product and modular process; long production runs in specialized facilities; build capacity ahead of demand
Process focused; general processes; “job shop” approach, short-run production; focus on high utilization
Location
Still located in the city where it was founded
Recently moved to low-tax, low-labor-cost environment
Table 2.2

35. Operations Strategies for Two Drug Companies
Brand Name Drugs, Inc.
Generic Drug Corp.
Competitive Advantage
Product Differentiation
Low Cost
Scheduling
Centralized production planning
Many short-run products complicate scheduling
Layout
Layout supports automated product-focused production
Layout supports process-focused “job shop” practices
Table 2.2

36. Operations Strategies for Two Drug Companies
Brand Name Drugs, Inc.
Generic Drug Corp.
Competitive Advantage
Product Differentiation
Low Cost
Human Resources
Hire the best; nationwide searches
Very experienced top executives; other personnel paid below industry average
Supply Chain
Long-term supplier relationships
Tends to purchase competitively to find bargains
Table 2.2

37. Operations Strategies for Two Drug Companies
Brand Name Drugs, Inc.
Generic Drug Corp.
Competitive Advantage
Product Differentiation
Low Cost
Inventory
High finished goods inventory to ensure all demands are met
Process focus drives up work-in-process inventory; finished goods inventory tends to be low
Maintenance
Highly trained staff; extensive parts inventory
Highly trained staff to meet changing demand
Table 2.2

38. Issues In Operations Strategy
Research about effective operations management strategies
Preconditions for developing effective OM strategies
The dynamics of OM strategy development

39. Characteristics of High ROI Firms
High product quality
High capacity utilization
High operating efficiency
Low investment intensity
Low direct cost per unit
From the PIMS program of the Strategic Planning Institute

40. Strategic Options to Gain a Competitive Advantage
28% - Operations Management
18% - Marketing/distribution
17% - Momentum/name recognition
16% - Quality/service
14% - Good management
4% - Financial resources
3% - Other

41. Elements of Operations Management Strategy
Low-cost product
Product-line breadth
Technical superiority
Product characteristics/differentiation
Continuing product innovation
Low-price/high-value offerings
Efficient, flexible operations adaptable to consumers
Engineering research development
Location
Scheduling

42. Preconditions One must understand:
Strengths and weaknesses of competitors and possible new entrants into the market
Current and prospective environmental, technological, legal, and economic issues
The product life cycle
Resources available within the firm and within the OM function
Integration of OM strategy with company’s strategy and with other functional areas

43. Dynamics of Strategic Change
Changes within the organization
Personnel
Finance
Technology
Product life
Changes in the environment

44. Company Strategy/Issues Drive-through restaurants
Product Life Cycle
Introduction Growth Maturity Decline
Company Strategy/Issues
Best period to increase market share
R&D engineering is critical
Practical to change price or quality image
Strengthen niche
Poor time to change image, price, or quality
Competitive costs become critical
Defend market position
Cost control critical
Internet search engines
Sales
Xbox 360
Drive-through restaurants
CD-ROMs
3 1/2” Floppy disks
LCD & plasma TVs
Analog TVs
iPods
Figure 2.5

45. Product Life Cycle Introduction Growth Maturity Decline
OM Strategy/Issues
Product design and development critical
Frequent product and process design changes
Short production runs
High production costs
Limited models
Attention to quality
Forecasting critical
Product and process reliability
Competitive product improvements and options
Increase capacity
Shift toward product focus
Enhance distribution
Standardization
Less rapid product changes – more minor changes
Optimum capacity
Increasing stability of process
Long production runs
Product improvement and cost cutting
Little product differentiation
Cost minimization
Overcapacity in the industry
Prune line to eliminate items not returning good margin
Reduce capacity
Figure 2.5

46. External Opportunities
SWOT Analysis
Internal Strengths
Internal Weaknesses
External Opportunities
External Threats
Mission
Analysis
Strategy

47. Strategy Development Process
Environmental Analysis
Identify the strengths, weaknesses, opportunities, and threats. Understand the environment, customers, industry, and competitors.
Determine Corporate Mission
State the reason for the firm’s existence and identify the value it wishes to create.
Form a Strategy
Build a competitive advantage, such as low price, design, or volume flexibility, quality, quick delivery, dependability, after-sale service, broad product lines.
Figure 2.6

48. Strategy Development and Implementation
Identify critical success factors
Build and staff the organization
Integrate OM with other activities
The operations manager’s job is to implement an OM strategy, provide competitive advantage, and increase productivity

49. Critical Success Factors
Marketing
Service
Distribution
Promotion
Channels of distribution
Product positioning
(image, functions)
Finance/Accounting
Leverage
Cost of capital
Working capital
Receivables
Payables
Financial control
Lines of credit
Production/Operations
Decisions Sample Options Chapter
Product Customized, or standardized 5
Quality Define customer expectations and how to achieve them 6, S6
Process Facility size, technology, capacity 7, S7
Location Near supplier or near customer 8
Layout Work cells or assembly line 9
Human resource Specialized or enriched jobs 10, S10
Supply chain Single or multiple suppliers 11, S11
Inventory When to reorder, how much to keep on hand 12, 14, 16
Schedule Stable or fluctuating production rate 13, 15
Maintenance Repair as required or preventive maintenance 17
Figure 2.7

50. Four International Operations Strategies
Import/export or license existing product
Examples
U.S. Steel
Harley Davidson
International Strategy
Cost Reduction Considerations
High
Low
Local Responsiveness Considerations
(Quick Response and/or Differentiation)

51. Four International Operations Strategies
Cost Reduction Considerations
High
Low
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
International Strategy
Import/export or license existing product
Examples
U.S. Steel
Harley Davidson

52. Four International Operations Strategies
Standardized product
Economies of scale
Cross-cultural learning
Examples
Texas Instruments
Caterpillar
Otis Elevator
Global Strategy
Cost Reduction Considerations
High
Low
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
International Strategy
Import/export or license existing product
Examples
U.S. Steel
Harley Davidson

53. Four International Operations Strategies
Cost Reduction Considerations
High
Low
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
Standardized product
Economies of scale
Cross-cultural learning
Examples
Texas Instruments
Caterpillar
Otis Elevator
Global Strategy
International Strategy
Import/export or license existing product
U.S. Steel
Harley Davidson

54. Four International Operations Strategies
Use existing domestic model globally
Franchise, joint ventures, subsidiaries
Examples
Heinz
McDonald’s
The Body Shop
Hard Rock Cafe
Multidomestic Strategy
Cost Reduction Considerations
High
Low
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
Standardized product
Economies of scale
Cross-cultural learning
Examples
Texas Instruments
Caterpillar
Otis Elevator
Global Strategy
International Strategy
Import/export or license existing product
U.S. Steel
Harley Davidson

55. Four International Operations Strategies
Cost Reduction Considerations
High
Low
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
Standardized product
Economies of scale
Cross-cultural learning
Examples
Texas Instruments
Caterpillar
Otis Elevator
Global Strategy
International Strategy
Import/export or license existing product
U.S. Steel
Harley Davidson
Multidomestic Strategy
Use existing domestic model globally
Franchise, joint ventures, subsidiaries
Heinz The Body Shop
McDonald’s Hard Rock Cafe

56. Four International Operations Strategies
Move material, people, ideas across national boundaries
Economies of scale
Cross-cultural learning
Examples
Coca-Cola
Nestlé
Transnational Strategy
Cost Reduction Considerations
High
Low
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
International Strategy
Import/export or license existing product
Examples
U.S. Steel
Harley Davidson
Multidomestic Strategy
Use existing domestic model globally
Franchise, joint ventures, subsidiaries
Heinz The Body Shop
McDonald’s Hard Rock Cafe
Standardized product
Economies of scale
Cross-cultural learning
Texas Instruments
Caterpillar
Otis Elevator
Global Strategy

57. Four International Operations Strategies
Cost Reduction Considerations
High
Low
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
Standardized product
Economies of scale
Cross-cultural learning
Examples
Texas Instruments
Caterpillar
Otis Elevator
Global Strategy
Transnational Strategy
Move material, people, ideas across national boundaries
Coca-Cola
Nestlé
International Strategy
Import/export or license existing product
U.S. Steel
Harley Davidson
Multidomestic Strategy
Use existing domestic model globally
Franchise, joint ventures, subsidiaries
Heinz The Body Shop
McDonald’s Hard Rock Cafe

58. The Supply Chain’s Strategic Importance
Supply chain management is the integration of the activities that procure materials and services, transform them into intermediate goods and the final product, and deliver them to customers
Competition is no longer between companies; it is between supply chains

59. Supply Chain Management
Important activities include determining
Transportation vendors
Credit and cash transfers
Suppliers
Distributors
Accounts payable and receivable
Warehousing and inventory
Order fulfillment
Sharing customer, forecasting, and production information

60. A Supply Chain for Beer
Figure 11.1

61. Global Supply Chain Issues
Supply chains in a global environment must be able to
React to sudden changes in parts availability, distribution, or shipping channels, import duties, and currency rates
Use the latest computer and transmission technologies to schedule and manage the shipment of parts in and finished products out
Staff with local specialists who handle duties, freight, customs and political issues

62. How Supply Chain Decisions Impact Strategy
Low-Cost Strategy
Response Strategy
Differentiation Strategy
Supplier’s goal
Supply demand at lowest possible cost (e.g., Emerson Electric, Taco Bell)
Respond quickly to changing requirements and demand to minimize stockouts (e.g., Dell Computers)
Share market research; jointly develop products and options (e.g., Benetton)
Primary selection criteria
Select primarily for cost
Select primarily for capacity, speed, and flexibility
Select primarily for product development skills
Table 11.1

63. How Supply Chain Decisions Impact Strategy
Low-Cost Strategy
Response Strategy
Differentiation Strategy
Process charact-eristics
Maintain high average utilization
Invest in excess capacity and flexible processes
Modular processes that lend themselves to mass customization
Inventory charact-eristics
Minimize inventory throughout the chain to hold down cost
Develop responsive system with buffer stocks positioned to ensure supply
Minimize inventory in the chain to avoid obsolescence
Table 11.1

64. How Supply Chain Decisions Impact Strategy
Low-Cost Strategy
Response Strategy
Differentiation Strategy
Lead-time charact-eristics
Shorten lead time as long as it does not increase costs
Invest aggressively to reduce production lead time
Invest aggressively to reduce development lead time
Product-design charact-eristics
Maximize performance and minimize costs
Use product designs that lead to low setup time and rapid production ramp-up
Use modular design to postpone product differentiation as long as possible
Table 11.1